Summarised by Centrist
Experts are weighing in on whether the Reserve Bank needs to gently raise interest rates (‘soft landing’) or put through a much firmer interest rate increase (‘hard landing’).
Economist Michael Ryan highlights how the latter has proven historically effective in countering inflation.
Ryan, a Waikato University Teaching Fellow in Economics, has weighed in on Reserve Bank governor Adrian Orr’s recession comments, saying a ‘hard landing’ is needed to tame inflation.
According to Ryan, high interest rates have proven historically effective in countering inflation. An example was in 1974 which saw a large increase in oil prices after the 1973 Arab-Israeli war. The same occurred during 1990-1992 as the first Gulf War raged.
Orr’s position has been refuted by experts including Infometrics’ chief forecaster Gareth Kiernan who argues NZ should aim for a soft landing – successfully controlling inflation via a cycle of rising interest rates, without tipping the economy into recession.
Ryan added that while NZ is not currently in a recession, recent events in the Middle East, coupled with the ongoing war in Ukraine, are not positive when it comes to avoiding a downturn, meaning NZ can expect the economic climate to worsen.
